VWs diesel cars emit a much larger amount of nitrogen oxides (NOx) and fine particulates than regulators thought. Greenpeace estimates that an extra 60,000 to 24,000 tonnes of NOx have been emitted each year from 11m vehicles sold around the world. NOx and fine particulates have severe impacts on human health and are responsible for many early deaths each year.

We can put a crude financial figure on the impact of the loss of life. Roughly speaking, we think that VW’s actions resulted in costs of between £21 and £90bn for NOx pollution alone. The larger figure is greater than the stock market value of the entire company. VW would therefore be worthless if called upon to pay the full price for its actions.

Our calculation is based on three separate numbers. All are approximate and can be argued over. But we thought it might be helpful to do the arithmetic nevertheless. These numbers only estimate the social cost of early deaths, not the full burden of ill health, from NOx pollution.

1.The World Health Organisation estimates that each 1000 tonnes of NOx emitted to the atmosphere costs about 70 lives. The total number of lives lost annually from the additional NOx from VW cars is thus estimated to be between 4,000 and 17,000. (These are numbers provided by Greenpeace).

2.A UK academic study suggests that those dying early as a result of particulate pollution lose an average of over 11 years of life. If NOx early deaths are comparable this would mean that up to 200,000 total years of life are being lost annually because of the extra NOx pollution VW caused.[1]

3.NICE, the UK government body responsible for deciding whether life-prolonging drugs are worth the cost, suggests that a year of extra life can be valued at up to £30,000. Depending on circumstances, NICE will agree that drugs costing at least £20,000, and sometimes as much as £30,000, can be bought by the NHS. Other countries, such as the US, use higher numbers for the value of a year of life.[2]

Simple multiplication of these three numbers gives a figure of between £1.4bn and £6.0bn a year. The typical VW car will be used for about 15 years, implying that the total cost to world health from VW’s higher-than-stated pollution from its 11m cars is between £21bn and £90bn. Before the revelations, VW was valued at about £50bn by the stock market.

Diesel cars have been favoured by governments because of their lower CO2 emissions than their petrol equivalents. Diesel’s advantage over petrol saves about 0.5 tonnes of CO2 per year. When economists put an environmental cost on a tonne of CO2, they often use a figure of about £50 a tonne of CO2. Diesel’s better carbon emissions performance therefore has a value of around £25 a year per car. For the 11m affected diesel cars the CO2 saving over the 15 year life of the vehicle will be worth about £4.1bn, a small fraction of the extra cost imposed by the worse NOx pollution.

To us, this seems an interesting illustration of how current pollution costs may bring about faster action on fossil fuels than the longer-run but equally serious threat from climate change.

Unless NOx performance of diesel cars can be substantially improved, petrol cars are better, even taking into account the increased CO2 emissions. Electric cars are, of course, very much better both from CO2 and NOx perspectives. Proper accounting for the costs of pollution will take an inevitable and predictable toll on companies reliant on fossil fuels, directly or indirectly.

A pension fund manager recently said to one of us that she is resisting calls to divest shareholdings in businesses like VW linked to the fossil fuel economy. Her justification was that the risk of an unexpected deterioration in value was no different to other reputational or brand risks faced by companies in her portfolios. The potential cost of fossil fuel involvement is equivalent, she said, to the possibility of damage to a company’s value from its exposure, for example, to child labour accusations or to evidence of regulatory corruption.

We disagree; the ‘carbon risk’ is a systematic, visible and large threat to major companies around the world. Only today, National Grid is saying as clearly as it can that the future of electricity supply is based around solar power. No pension fund trustee can legitimately ignore the increasingly obvious likelihood of a rapid destruction of shareholder value as the world speeds up the switch away from coal, oil and even gas. The death of the carbon economy is not a Black Swan event. It is an entirely predictable and inevitable development.